NZD: Further depreciation wanted – Commerzbank

Dr Jörg Krämer, Chief Economist at Commerzbank, notes that the Reserve Bank of New Zealand (RBNZ) reacted with a surprise rate cut to limit deflation risks following the NZD’s appreciation since the beginning of the year.

Key Quotes

“The RBNZ expects the trade-weighted NZD to depreciate further over the course of this year. To ensure this, we are looking for another rate cut in summer.

The economic outlook for New Zealand remains cloudy. Besides developments in China, the sharp slump in milk prices is the greatest risk factor for the economy.

The inflation rate was below the RBNZ‘s target corridor for the whole of last year. This is unlikely to change in 2016.

The RBNZ can hardly afford an appreciation of the NZD as this would weigh on exports and push the inflation rate down again.

Only by the end of the year should the RBNZ turn more tolerant with regard to NZD appreciation as inflation rises again, milk prices recover and the economy remains solid.”